Personalized retargeting has become its own frothy category, with many pure-play personalized retargeting vendors seeking to solve the technology and media problem of doing retargeting with SKU-level creative. Yet, at the same time, the largest innovations in display have ben led by a handful of companies (call them DSPs) who are bringing real-time liquidity, automation, and optimization to media buying. These platforms optimize the entire customer journey from top of the funnel to conversion with numerous strategies, including personalized retargeting. And they’re doing so with a transparent business model.

As a result, marketers are running a considerable amount of digital marketing budget through these DSPs. Yet many still feel they need to maintain separate personalized retargeting relationships with antiquated ad network-style pricing and opacity. Below are 5 reasons why this doesn’t make sense.

1. Transparency (or, arbitrage is for suckers)

CPC pricing. Search does it, right? So why shouldn't display work that way? Because display isn't search, and display isn't primarily a single-publisher ecosystem. What about CPA pricing? Only pay for acquisitions! Well, what if you're telling your personalized retargeting vendor that you're willing to pay $10 CPA when they can get those conversions for you at $5 CPA? You could be getting 2x the conversions, 2x the volume. But you'll never know, because you've agreed to an opaque pricing model.

Even before all the algo mumbo jumbo, the pricing model of DSPs alone changed everything: now, marketers know what they're paying for. That bell can’t be unrung. The ecosystem took a step forward, yet personalized retargeting is most often priced like an ad network from the early 2000s. When you’re paying CPC or CPA, how can you be sure the markup isn’t 50%, 100%, 200%, 400%?

2. You have one customer, not two

While your DSP does mid funnel prospecting, your personalized retargeting vendor mops up the conversions. Try this: ask your personalized retargeting vendor where these conversions came from. Ask them what the effect of different prospecting campaigns has on retargeting campaigns. If you’re using two separate platforms, you aren’t going to be able to get the unified view of your customer that a good DSP can deliver. What’s more, the opaque pricing model confounds things further, because you’re not able to bid the fair value for each impression you’re getting, taking into account the amount you’ve already paid to get this user’s attention in the first place. Again, we’ve made a step forward here. Why go two steps backward?

3. You have one budget, not two

Based on their contributions to customer lifetime value, total return on ad spend, and other key metrics important to everyone’s business, how much should you be spending on prospecting vs. personalized retargeting at any given moment? If you are siloing these channels, it’s anybody’s guess. Pricing dynamics and consumer demand can shift in an instant, and if you’re running display as two separate marketing channels, you’re missing opportunities. Any good DSP can optimize on a campaign level- meaning it can dynamically shift spend from one strategy (e.g. prospecting) to another (e.g. personalized retargeting) in an instant, based on instantaneous market dynamics.

4. RTB isn’t ‘niche’ anymore

The classic argument for a few of the pure-play personalized retargeting vendors has been that solely buy via RTB don’t have enough scale. Maybe in 2010 that was true, but today, RTB accounts for nearly 25% of total available inventory and it’s growing at an insane clip. Facebook settled the argument here with Facebook Exchange. RTB can get you tremendous reach and scale, and you’ll only pay what each impression is worth instead of what an arbitrageur decides you should pay. Platforms like AppNexus, Invite Media, Turn, and MediaMath are plugging into more inventory sources every day, and they’re no longer limited to just exchanges. This wasn’t true a couple years ago.

5. We’re in the ‘third wave’ of creative tech

Dynamic creative has always been a major pain. Delayed campaign execution caused frustration, and budgets to go away. Early efforts by PointRoll and Eyeblaster begat a second wave of innovation from pure-play dynamic creative vendors (Dapper/Yahoo, Teracent/Google, and Tumri/Collective), and now we’re upon the third wave of creative technology that has made great strides in making campaigns easier to execute.

For once, personalized retargeting is no longer a question of “if” -- it’s a question of “how.” At the same time, programmatic buying platforms (DSPs) are becoming a must-have for any serious direct response marketer. The convergence of these two technologies is upon us, and smart marketers are wise to explore the synergy between them to drive their business. Today, those marketers who know the value in taking control of their media strategies with DSPs are literally a click away from activating that value in their personalized retargeting.

7 Comments

Good post Tal, but I disagree on 2 points -
1. The alternative to CPC/CPA pricing and the one that you are suggesting I suppose is flat fee/license fee or CPM fee (similar to adserving fees). Although there is more transparency in this alternative, the major problem with it is ongoing optimization. Here, there is very little incentive for the DSP or Retargeter to optimize campaigns and reduce eCPA. There is very little that an advertiser can do here to push the DSP. On the other hand, a CPA model has inherent incentive for the DSP to sharpen the targeting and campaign to perform optimally/efficiently. Sure, this creates better margins for the DSP, but so what? In a market scenario, don't you think these efficiencies/margins will eventually get translated to benefits on the advertisers's side as well?
2. Solely buying via RTB definitely does not have enough scale. Maybe in the US, but anywhere else, especially JAPAC and LATAM, RTB is still very niche. One has to work with the local adnetworks, adexchanges and publishers to achieve scale.

1. You are correct in saying that CPC/CPA reduces the inherent risk of a non-performing campaign. That being said, DSPs and other transparent buying platforms enable their client to manage and fine tune their campaigns in order to reach their CPC/CPA goals. In a competitive market, those that will be able to offer tools to achieve the best performance will win the market AND gain valuable insight about the campagins.

To maintain long-term relationships, the performance has to be there, but the pricing model is not the only way to grauntee that incentives are alined. Your agrument applies to any kind of media buying, but at the end of the day 99% of RTB inventory is sold on a CPM basis. There's no reason why retargeting should require a different business model necessarily.

2. The Liquidity: There's constant growth in media avilability outside the US, and DSPs/SSPs/etc. have made huge strides in securing 'private' or non-RTB sources of inventory as well. The field is becoming a lot more even, and we expect this trend to continue.

Finally, in my opinion, the benefits of transparancy and control over the inventory and data far outweight the CPM to CPC risks.

How would clients prefer to pay?
At TellApart, we built our business model from the perspective of our clients. What do they value most? Transparent proof the shopper saw and valued the marketing message enough to engage (ad click) and complete a retail purchase (conversion). Hence, we exclusively use click-to-conversion revenue share pricing. As to whether double the volume could be achieved with a different vendor/pricing scheme, well -- we're happy to participate in that challenge, anytime.

Allow me to clarify: not suggesting that arbitrage is "simple." From my background in the financial services industry, I can confirm that arbitrage is anything but simple.

Additionally, I think that for many advertisers, TellApart offers a great service and a simple payment method that fits their goals. That being said, for advertisers that are already actively engaged in DSP media buying, there's a valuable alternative - one that offers complete transparancy over the media buying process, and serves those advertisers with the tools and insight to leverage their own data and capabitlites when running personalized retargeting campagins.

For those clients, seperating their media budget between two technology providers might not be ideal, and they should weigh the benefits, test, and determine what works best for them.

Interesting, Im not 100% sure what your (or the markets in general) distinction between DSP and Retargeting Vendor is?

In my opinion a DSP is a company that buys 100% RTB off adexchanges/ssps. They may, however, be primarily focussed on retargeting. In terms of pricing, I agree that the future is in cost transparency, incentives are much more aligned with the model Josh from Tellapart mentions above or with a flat fee model, working towards a post-click CPA target.

Many people seem to forget the issue of internal auctions. A DSP may be running a campaign for Nike and Adidas, if they charge them on a CPC basis, they have every incentive to run an internal auction before submitting their 1 response to the exchange in order to increase their margin. With a flat fee model + post-click CPA goal of the campaign, there is no incentive for the DSP to run this pre-auction as the fee is taken before the campaign. The incentive for both sides is around reaching the CPA.

Indeed a great article by Konrad, and I agree that smart advertisers should not be focused with CPM costs. CPM is a payment method that reduces that risk to the publisher that is selling is inventory. In an RTB space, most publishers have little insight about the actual ads that will run on their site, and since they can't tell in advance the CTR (let alone conversion rate), CPM model shifts the risk to the advertiser.

Smart DSP advertisers should leverage the DSP and RTB capabilities to differentiate one ad unit from another, and provide dynamic CPM bidding in order to capitlize on the RTB promise, and deliver better performance on their campaign. In other words, they optimize for lower cCPC / cCPA (cost CPC and CPA) while bidding in CPMs.